A cryptocurrency investment fund has launched a class-action lawsuit in a U.S. court against Block.one and EOS’ high command, arguing the “fraudulent scheme” failed to deliver on its primary promise of decentralization.

The Crypto Assets Opportunity Fund (CAOF), along with individual investor Johnny Hong, has accused Block.one, CEO Brendan Blumer, CTO Dan Larimer, former Chief Strategy Officer Brock Pierce and former partner Ian Grigg, of trying to “capitalize on the investor fervor for cryptocurrencies” in 2017 to host an illegal securities sale.

In a strongly worded filing with the Southern District of New York, plaintiffs argue defendants purposefully misled investors and artificially inflated the eos token price during the yearlong initial coin offering (ICO), which raised a total of $4.1 billion between June 2017 and June 2018.

The filing reads: “This case arises out of a fraudulent scheme, fueled by a global frenzy over cryptocurrencies and unchecked human greed, to raise billions of dollars through sales of a cryptocurrency called EOS – an unregistered security – to investors in violation of the United States federal securities laws.”

Both COAF and Hong are seeking damages, to be agreed on by the federal court, from the defendants.

The suit, filed Monday, has six counts. These include well-worn accusations such as Block.one aggressively marketed its token sale in the U.S. without first registering it with the Securities and Exchange Commission (SEC).

But the case’s linchpin is the accusation Block.one and its representatives made “dozens of materially false and misleading statements” about EOS, especially in attempts to promote it as a superior new type of decentralized protocol.

In the filing, plaintiffs say EOS was always publicly described as decentralized, and that this formed a crucial part of the whitepaper and broader ICO pitch.

But, they claim, this turned out to be false as soon as the protocol launched. It was the 21 block producers (BPs) who really controlled the ecosystem rather than the community itself, the filing reads. Key parts of the governance system such as the arbitrator, who could reverse and freeze transactions at will, were never disclosed at the time of the sale, the plaintiffs claim.

As proof that EOS was not the decentralized protocol investors had been led to believe, the filing cites a statement Pierce made in 2019 – after he had left Block.one – when he claimed EOS was effectively controlled by a “Chinese oligarchy.”

“Block.one did not have the ability to create a decentralized EOS blockchain,” the suit concludes. The plaintiffs say the failure to deliver on one of the sale’s key promise – as well as the costly Voice pivot – has had a negative impact on the eos token price, which materially harmed investors like themselves.

CAOF is an Illinois-based pooled fund set up in 2017 under the umbrella of Victoria Capital – a blockchain-specific investment and advisory fund. There is very little public information about individual investor Johnny Hong besides that he resides in Solvang, California.

It isn’t clear when CAOF bought into the EOS ICO or for how much, although a Medium post by CEO Brandon Elsasser, who is also Victoria Capital’s chief investment officer (CIO), said in a July 2018 update that the fund had forsworn further ICO investing as it presented more risk than was deemed prudent.

Block.one reached a settlement with the SEC last September, agreeing to pay $24 million in damages for running an unregistered securities sale in exchange for a waiver on the legal restrictions that would usually be applied.

At the time, SEC Division of Enforcement co-Director Steven Peikin said in a statement that Block.one had failed to provide investors with the information typically included in a securities sale.

Considering the $24 million penalty represented 0.58% of the initial raise, some criticized the settlement as little more than a slap on the wrist. Earlier this year, investors filed another complaint requesting damages against Block.one after participating in the token sale.

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